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  • 1.  Scholarship that will likely have a small pool of eligible recipients

    Posted 11-25-2024 02:48 PM

    hello
    I have seen thread before about IRS language prohibiting scholarships that would dramatically limit the number of eligible recipients.  Yet, I cannot find it in the archives or on the IRS site. Can someone point me in the correct direction, please?



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    Tracy Rush
    Executive Director, Advancement Services
    Otterbein University
    trush@otterbein.edu
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  • 2.  RE: Scholarship that will likely have a small pool of eligible recipients

    Posted 11-25-2024 02:56 PM
      |   view attached
    It is more about donor control and a limited number of beneficiaries. This is addressed in the CASE Standards as well. The key is the IRS's concern that the institution has full control over the disposition of funds.

    IRS Publication 526 regarding gifts to individuals is also helpful.

    I've attached some of what I've shared before. Also, here's one IRS reference regarding the size of charitable class:


    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987




    Attachment(s)

    pdf
    Donor Control Issues.pdf   11 KB 1 version
    Original Message


  • 3.  RE: Scholarship that will likely have a small pool of eligible recipients

    Posted 11-25-2024 03:00 PM

    Thank you!  I appreciate you so much.  I knew I had read this before, but was struggling to find the wording to look for it. 

     




    Original Message


  • 4.  RE: Scholarship that will likely have a small pool of eligible recipients

    Posted 11-25-2024 04:23 PM
    My pleasure!

    By the way, the IRS website shared is not the original citation for "charitable class." Some misread that page, thinking it applies only to disaster relief. That page is just an example of how the term charitable class is used.

    IRS Publication 5781, Exempt Organizations Technical Guide (TG 3-3: Exempt Purposes - Charitable IRC Section 501(c)(3)) is the primary source for this definition.

    At the bottom of this note is a snip from page 7 of this year's edition of 5781. Also, the Council on Foundations has an FAQ on scholarships ( https://cof.org/content/faq-scholarships ), which includes this bit:
    What constitutes a charitable class in establishing a scholarship program?

    In general, a charitable class is a group that is large enough so that an indefinite number of individuals may benefit. However, a charitable class may properly be comprised of a comparatively small number of beneficiaries, provided the class is open and the identities of the individuals to be benefited remain indefinite. "All the graduating seniors at a local high school" is a common and generally acceptable class. A class that includes members of a single family, on the other hand, is likely to be too small to qualify as charitable. Potential recipients may be limited to members of one sex or an economically disadvantaged group. Race-based limitations pose special questions and should certainly be discussed with expert counsel.

    From Publication 5781, (2-2024) page 7:
    image.png


    John H. Taylor, Principal
    John H. Taylor Consulting, LLC
    2604 Sevier Street
    Durham, NC     27705

    919.816.5903 (cell/text)

    Serving the Advancement Community Since 1987





    Original Message


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